Weekly insight into the marketplace.
U.S. inflation cooled for a sixth-straight month
Building on a positive start to 2023, the major U.S. stock markets added to gains from the previous week – which began (on January 6) with
strong jobs and services data, raising optimism the U.S. Federal Reserve (the Fed) would be less aggressive with upcoming interest-rate
decisions. Monday’s hot start did fizzle, however, prior to the closing bell, after San Francisco Fed President Mary Daly and her Atlanta
counterpart, Raphael Bostic, noted their expectation that the U.S. central bank would raise interest rates above 5% by the second quarter.
Despite this news, investors remained positive in the lead-up to inflation data released on Thursday. The Consumer Price Index (CPI) report
showed that annual inflation cooled to 6.5% in December, down from 7.1% in November (and the 9% peak last June). Core inflation, which strips
out volatile food and energy costs, was up 5.71% annually, the slowest pace since December 2021. While the inflation report was on par with
economists’ expectations, it was enough to further fuel hopes that the Fed would reduce plans for interest-rate increases. The Dow ended the
week up 2%, the S&P 500 closed just shy of 4,000 with a 2.67% increase, and the Nasdaq rose 4.82%.
The World Bank reduced its global growth forecast
In its annual report, the World Bank – which provides loans and grants to the governments of lower- and middle-income countries for development
projects – cut its global growth forecast by nearly half: it moved down to 1.7% from the 3% projected last June. If accurate, it would be the
third-weakest gross domestic product (GDP) expansion in the last 30 years, trailing only the 2008 financial crisis and the 2020 onset of the
COVID-19 pandemic. The bank, which also scaled back its 2024 forecast and warned that the global economy has warning signs of a recession, cited
persistent inflation and rising interest rates among several factors working against the economy. “Russia’s invasion of Ukraine has added major
new costs,” World Bank President David Malpass told reporters. “The outlook is particularly devastating for many of the poorest economies where
poverty reduction is already ground to a halt and access to electricity, fertilizer, food and capital is likely to remain limited for a
prolonged period. Addressing the scale of these challenges will require significantly more resources for development and global public goods.”
Oil prices were up, despite an uncertain Q1 outlook
A forecast published by Deloitte pointed to ongoing energy-sector volatility through the first quarter of 2023, as geopolitical risks remain
high. Released Monday, the “energy, oil and gas price” forecast underlined the ongoing war in Ukraine, and China’s balancing of new COVID-19
cases and efforts to reopen, as major factors weighing on supply and demand. The report’s author, Andrew Botterill, did note that demand for
North American oil and natural gas could benefit Canadian energy companies. Last week, oil prices edged higher, with the price per barrel of
West Texas Intermediate reaching US$80. This was following a strong import quota from China as well as Thursday’s positive inflation report. The
commodity-heavy TSX rode the energy-sector gains to a five-day win streak.
The stock and bond market
Dow Jones Industrial Average
S&P 500 Index
10-year Canadian Bond Yield
year U S Treasury Yield
WTI Crude Oil
Bank of Canada Prime Rate 6.45%
*Weekly performance ending January 13, 2023. Source:
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much. This makes timing the market a risky approach. That’s why your investment strategy, from the outset, should be based on your
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Canadian inflation data (January 17): In November, Canadian inflation cooled to 6.8% – slightly down from the previous
month’s 6.9% annual rate, but above economists’ expectations of 6.7%. Tuesday’s data will be closey watched, given Bank of Canada
Governor Tiff Macklem’s final speech of 2022. In it, he said that “decisions to raise the rate or to pause and assess the impact of past
rate increases will depend on incoming data and our judgments about the outlook for inflation.”
Circle these dates
Bank of Canada interest-rate announcement
January 31 to February 1
U.S. Federal Reserve meetings and statement
North American markets closed for holidays
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